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Calculate the internal rate of return for both investments

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There are two mutually exclusive investment opportunities. The initial investment for both projects are $100,000. The first investment will generate $20,000 per year in perpetuity. The second project is expected to generate $15,000 for the first year and the amount will grow at 2% per year after that. The first cash flow for both investments start at the end of the first year.

Question 1: Calculate the internal rate of return for both investments.

Question 2: Assume the cost of capital is 7%, calculate the NPV for both investments.

  • Based on your answers in (a) and (b), which investment should you choose? Why?

Reference no: EM132554434

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